You are hereA Digression on Comparative Advantage

A Digression on Comparative Advantage

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By Islamaphobe - Posted on 07 February 2007

by John Evans
My last article posted on planetpreterist.com, “Biting the Invisible Hand—I,” provoked negative responses from three readers who suggested, among other things, that the principle of comparative advantage (CA), on which economists base their claim that international trade tends to be mutually beneficial to the nations involved, is a dangerous fallacy. My critics also insisted that the preservation in the United States of a free market system that is consistent with Adam Smith’s “invisible hand” requires the existence of a high tariff wall for the protection of American industry. This (to me) glaring demonstration of the lack of understanding of CA and its implications has caused me to alter my writing plans so as to offer the present article before doing a second article on the invisible hand of Adam Smith. I don’t expect to convert my critics, but I hope to prevent some readers from being misled by them.My last article posted on planetpreterist.com, “Biting the Invisible Hand—I,” provoked negative responses from three readers who suggested, among other things, that the principle of comparative advantage (CA), on which economists base their claim that international trade tends to be mutually beneficial to the nations involved, is a dangerous fallacy. My critics also insisted that the preservation in the United States of a free market system that is consistent with Adam Smith’s “invisible hand” requires the existence of a high tariff wall for the protection of American industry. This (to me) glaring demonstration of the lack of understanding of CA and its implications has caused me to alter my writing plans so as to offer the present article before doing a second article on the invisible hand of Adam Smith. I don’t expect to convert my critics, but I hope to prevent some readers from being misled by them.Although I did not refer to CA and international trade in my last article, these topics came up in the ensuing exchange of comments between me and my critics. They informed me that to endorse international trade based on CA inevitably tends to lead to “free trade,” by which they evidently have in mind a world economic system in which goods, services, money, and people move across international boundaries subject to very few restrictions. Such a world, in their view, would be a disaster. I refused to go along with such sentiments and decided to retire from the field with the intention of producing a rebuttal article that will be more widely read, I hope, than additional exchanges of comments would have been. I anticipate that my three advocates of American protectionism will want to again exercise their polemical talents, which are considerable.

I shall begin with the observation that CA is not a philosophical construct like, for example, methodological naturalism, but a material fact. My professional background is economics, not philosophy, and I was far more concerned in my professional life with understanding the world as it is as opposed to developing a system of thought concerned with what it ought to be. One aspect of philosophy is to explore the implications of natural phenomena that are givens; i.e. facts. Therefore, I suppose, to the extent that I advocate the use of CA in helping us decide economic policy, I am engaging in what Robert Heilbroner called “worldly philosophy.”

Although CA is a natural phenomenon, people have had difficulty in constructing a simple definition of it, like, for example, saying that gravity is the attractive force that two bodies of mass exert upon each other. By an accident of history, formal explanations of CA have tended to be confined—unfortunately—to the field of international economics. Economists have used CA to explain why it makes sense for nations to expand their economic activity across international boundaries. This, of course, has aroused the ire of those who, for one reason or another, have been mistrustful of expanding economic contacts with other nations. For convenience, I shall refer to these opponents of expanding such contacts as “protectionists.” I realize that this term is often used pejoratively, and I freely admit that I am using it that way to some extent in this instance. On the other hand, the term is convenient, and I hasten to add that there are sound reasons for sometimes shielding domestic producers from foreign competition. Moreover, because my critics insist on labeling me an advocate of “free trade,” though I am not, I think I am not overstepping the bounds of fair play in identifying them by a term that effectively conveys what they actually do advocate.

The historical context in which CA was revealed to the world began, I believe, with an essay by Robert Torrens in 1815 entitled “Essay on the External Corn Trade.” Torrens, an English military officer and pamphleteer, used this essay to effect an improvement in Adam Smith’s explanation of the gains from international trade. What Smith had taught, boiling it down to simple terms, was that international trade tends to be based upon absolute advantage, by which he meant differences in the quantity of resources, most specifically labor, required to produce given quantities of particular commodities. In Smith’s world, if Poland could produce wheat at a lower cost than England in terms of the labor inputs required to produce a specific quantity of it, net of transportation costs, England would gain economically by importing wheat from Poland and paying for it by exporting to Poland some commodity or commodities in which it had an offsetting absolute advantage.

Torrens had the insight that if England could produce wheat at the same cost as Poland on some of its land, it might still want to import wheat from Poland even though transportation costs might seem to tip the scales in favor of producing the wheat in England. Thus, if England also had a substantial cost advantage over Poland in producing cloth, it would make sense for the English to give up some production of wheat in order to produce cloth for export to Poland in exchange for wheat. Therefore, he concluded, Smith’s concept of absolute advantage did not suffice to explain all international trade. Incidentally, Torrens defined production costs so as to include the inputs of both labor and capital.[1]

Following a long tradition among economists of trying to explain CA at the elementary level by the use of a highly simplified model, I shall inject some numbers into the case presented by Torrens. Suppose that with a certain quantity (X) of labor and capital, England can produce either 100 units of cloth (c) or 100 units of wheat (w), while Poland can produce 40 units of cloth or 100 units of wheat with the same quantity of labor and capital. To simplify, assume zero transportation costs and constant unit costs of production. Using 2X units of resources, 1X for each good, England can produce 100c and 100w, while Poland can produce 40c and 100w. Suppose, however, we let England specialize in cloth and use its 2X units of resources to produce 200c. And let Poland specialize in wheat so that it produces 200w. We now have total production of 200c and 200w, compared to the previous totals of 200c and 140w. Consequently, after England exports some of its cloth to Poland in exchange for wheat, both countries will be able to have more of both commodities than before. Just how such gains from trade would be allocated between the two nations would depend upon what John Stuart Mill called reciprocal demand, which refers to the strength and elasticity of each country’s demand for the other country’s product.

This example obviously employs some highly simplifying assumptions, namely constant production costs, zero transportation costs, homogeneous products, homogeneous resources, uniform technology, and the ability to immediately shift resources from the production of one good to the other without cost. Obviously, none of these assumptions holds in the real world. This, however, does not invalidate CA, though it reduces the benefits from relying on it. Thus, injecting complications that reflect greater realism serves to limit the gains from specializing on the basis of CA without eliminating them.

The applicability of CA to the real world is not restricted to international trade but applies generally whenever resources differ in their relative capabilities. To illustrate this point, here is a slight elaboration of an example that I used when I taught at the University of Alabama. Because I taught there in the days of Bear Bryant and Gene Stallings, it comes from football. Assume that there are two athletes, Q and S, who can each play quarterback or safety with great proficiency. They are close to each other in basic ability, but Q is superior to S at both positions. Now suppose that the head coach calculates that Q is worth 3 points more per game than S at quarterback, but only 1 point more per game at safety. Also assume that a backup quarterback is available who is as good as S at that position, but no one else on the squad can match S as a safety. Our coach should play Q at quarterback and S at safety. He can’t play Q both ways because his performance would then diminish due to fatigue, both physical and mental, and there would be a greater risk of injury. Note that this example demonstrates that specializing on the basis of CA reflects the fact that there are physical limitations to the employment of given quantities of resources. You can’t use only the most productive resources to produce all of the goods and services that are worth producing.

To these examples I shall add another, one that is more complicated but which illustrates more fully CA’s broad applicability and dynamic potential. When I neared retirement and developed enough interest in biblical study to want to accomplish something in that field, I realized that I was at a huge absolute disadvantage compared to any serious biblical scholar in almost any aspect of the study of the Bible. I was getting old, and my ability to memorize biblical passages and retain them had always been rather limited. For example, reading about ten verses of Revelation sufficed to overload my remaining memory neurons and subject me to the reality of rapidly diminishing returns. Yet I observed that the Book of Daniel had been relatively neglected by those biblical scholars whose general theological views I found to be compatible with my own; i.e. those who believed that a New Covenant had been put into place as of AD 70. I also felt that I was able to retain the sense of what I read in Daniel (as opposed to word-for-word recall) with little difficulty, and I felt that I had a pretty good ability to analyze and remember historical data. I concluded, therefore, that if I applied myself to the study of Daniel in concentrated fashion, I might be able, in time, to make a small contribution to overall biblical understanding and that what began as only a CA (and severe absolute disadvantage) might develop in time into an absolute advantage, at least with regard to some parts of Daniel. By the way, I shall be putting out a small book on Daniel 2 later this year and will use this opportunity to shamelessly put in a plug for it. After all, are not economists a materialistic lot whose thinking has been polluted with atheistic notions from such people as David Ricardo, Jeremy Bentham, and John Stuart Mill?

One of the posters of comments to my last article, Windpressor—who is not one my three critics—inserted the following comment from Wikipedia:

“Stanislaw Ulam once challenged Nobel laureate Paul Samuelson to name one theory in all of the social sciences which is both true and nontrivial. Several years later, Samuelson responded with David Ricardo’s theory of comparative advantage: ‘That it is logically true need not be argued before a mathematician; that is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them.’”

I suggest that one of the reasons that “important and intelligent men” have not been able to grasp the nature of CA is that economists have done a lousy job of explaining it to them. Another reason is that its confinement to the arena of international economic theory has turned it into a red flag from the perspective of the bulls of protectionism. Those “bulls” have tended to be easily aroused to fury historically for reasons that are rooted in the widespread development of an “us versus them” mentality. Among those reasons is the belief that “they” have religious views, including atheism, that are subversive of true religious understanding

Although it was Robert Torrens, I believe, who first brought the concept of comparative advantage to public attention, it was the great English economist David Ricardo who receives the credit for popularizing it. Torrens did not use the term “comparative advantage,” and neither did Ricardo; but Ricardo did incorporate a simple mathematical illustration of what he called the principle of “comparative cost” into his Principles of Political Economy, whose first edition appeared in 1817, which quickly came to be viewed as the most authoritative general treatise on economics in existence. In Ricardo’s illustration, two countries, England and Portugal, were assigned different quantities of labor required for the production of two commodities, wine and cloth. If my memory holds, he assumed that it took England 100 labor units to produce a certain quantity of cloth and 120 labor units to produce a certain quantity of wine, while the comparable labor inputs for Portugal were 90 and 80, respectively. He thus assigned Portugal an absolute advantage in both goods, but he gave England a comparative cost advantage in cloth while giving Portugal the comparative cost advantage in wine. Then, using various simplifying assumptions, he concluded correctly that it would be mutually advantageous for England to specialize in the production of cloth and for Portugal to specialize in the production of wine.

Among Ricardo’s simplifying assumptions, he particularly emphasized, as I recall, the immobility of labor internationally. Englishmen could not just get up and move en masse to Portugal. But though they could not emigrate, they could derive some benefit from Portugal’s relatively favorable circumstances by importing those goods in which Portugal had its greatest comparative cost advantages. In effect, therefore, international trade based on comparative costs could be viewed as a substitute for the international immobility of labor.

Although both Smith and Ricardo regarded merchants, bankers, and industrialists as productive agents, the fact that they emphasized labor costs in their discussions of international trade opened the door wide for Karl Marx to develop his infamous labor theory of value (LTV). Marx argued, of course, that labor was the sole source of value in production, which meant that incomes received in other forms than wages were derived from the exploitation of workers. The LTV had great political appeal and, in fact, continues to exert influence among people whose understanding of economics remains at what I shall term the primary school level—which includes many members of the intellectual elite. Above that level, however, it has become generally understood that there are other productive resources than labor and that demand, based on consumer preferences and marginal utility, exercises influence in conjunction with the supply of productive resources in determining market values.

Notwithstanding the intellectual impact of Smith, Ricardo, and other “classical” economists, the forces arrayed against the idea of expanding international trade based on their findings remained powerful in their day and have fought a long, running battle against the dismantling of protectionist barriers that continues to the present time. During the 190 years since the publication of Ricardo’s Principles, the study of international economics has become vastly more sophisticated, and the understanding of the situations in which protectionist measures are justifiable has greatly improved. I have no doubt that there are starry-eyed believers in “globalization” through the expansion of international commercial and financial activity who fit the straw man stereotype that arouses the fears expressed by my three critics, and it is true, as they perceive, that the long-term trend for the world as a whole has tended to be toward greater economic openness internationally. This trend, however, reflects economic reality far more than insidious ideological penetration. Putting it simply, nations that have relied upon CA and adopted relatively open economies have tended to do relatively well economically while nations that have adhered to protectionism have not.

Nevertheless, there are valid protectionist arguments, and I shall briefly call attention to four of them. First, there is the hallowed (and valid) infant industries argument, which holds that it sometimes makes economic sense to encourage the establishment of industries that produce substitutes for previously imported goods until such time as they have gained sufficient proficiency to be able to meet foreign competition. Of course, once you have created a new industry, you have also promoted the rise of a new interest group that will resist efforts to remove the government’s protective umbrella. Unsurprisingly, therefore, the history of efforts to promote economic development through import substitution contains an abundance of economic horror stories in which the “temporary” protection accorded infant industries became permanent.

Closely related to the infant industry is the external economies argument, which holds that the strategic selection of industries that merit protection from imports can result in accelerated economic development by increasing the pool of resources available to other industries. Thus, if a certain nation offers protection from imports to industry E and that industry is subsequently able to develop a sizable pool of skilled labors, managers, and potential entrepreneurs whose talents are transferable to other industries, the economy may be able to gain substantially even if the protection of industry E has to be continued somewhat beyond the infant industry stage. If the external economies prove to be sufficiently great, the national economy will develop comparative advantages in other industries than E that will allow it to substitute for some imports and expand exports.

The external economies argument is a challenging one to implement, of course, and it is necessary to keep in mind that there are external diseconomies as well as external economies. An example of an external diseconomy is when a firm dumps toxic waste into a stream without having to pay for the privilege of doing so. The costs that it thereby imposes on others are external to the profit and loss calculations of the firm’s managers and are likely to be ignored by them unless they have reason to fear that punitive action will be taken against them.

It is obvious that estimating external economies and diseconomies is a very complex matter and that the estimation process can be (and will be) abused. For example, it is my belief that the claims that global warming is currently taking place and has been doing so for some time now exaggerate its extent and also exaggerate the degree that it is caused by human activity. I believe that the exaggeration occurs, in part, because environmentalism has become a kind of secular religion—to some extent a replacement for Marxism—in which the emotional need to worship something trumps the material evidence. Some readers may not agree with me, and perhaps they are right, but consider the damage that is likely to be done to the world economy if I am right. My point is simply that externalities are dangerous things to deal with in forming public policy. It is because of this fact that libertarian economists have tended to take the position that since externalities cannot readily be incorporated into market calculations, they should be ignored in the formation of public policy unless they can be converted into internal costs and benefits. This conversion can be done, for example, with such measures as pollution taxes (as opposed to prohibitions) and subsidies for the training of skilled workers. Clearly, however, the opportunities for political mischief making abound once the recognition of externalities becomes a major feature of public policymaking.

A third argument for protection is that the costs of shifting resources from some industries to others may prove to be so substantial as to nullify the potential gains from specializing on the basis of CA. Thus, if a nation eliminates some of its barriers to imports with the expectation that the workers who become unemployed as a result will find employment elsewhere and that its exports will increase in accordance with CA, it could happen that the discounted present value of the losses to the economy caused by the rise in unemployment exceeds the discounted present value of the gains achieved even if the losses are relatively short-term and the gains are permanent. Moreover, there may be alterations in the distribution of income associated with trade liberalization that could warrant the adoption of a go-slow approach to liberalization. Thus, if some workers are permanently injured economically because of liberalization and others gain, the difficulty of making interpersonal comparisons raises questions about whether there are gains to the nation as a whole. Economists have sometimes suggested that this consideration warrants the granting of some compensation to those who suffer permanent injury as a consequence of trade liberalization.

The mention of distributional considerations as a factor to be taken into account in framing trade policy reminds me to point out that expanded international trade may tend to cause broad changes in income distribution even if no one suffers an absolute income decline after the adjustments to increased trade are completed. If, for example, the United States expands its imports of goods that are produced by relatively labor-intensive methods in this country, it is conceivable that the net result in terms of income distribution will tend to be a decline in the relative position of workers on the relatively low end of workers’ pay scales even though these workers do not experience an absolute decline in their incomes. On the other hand, if the “gravitational pull” of the U.S. economy results in the increased immigration of low-skilled workers into the United States, as opposed to the increased importation of goods produced by them, the impact upon the incomes of some American workers is likely to be decidedly more negative.

Staunch protectionists tend to oppose both an increase of imports of goods from such low-wage countries as China and Mexico and the immigration into the United States of low-skilled workers from such countries. In my judgment, any adverse distributional effects resulting from increased imports are likely to be far less than those resulting from the increased immigration of relatively unskilled workers. And that is without taking into account the social effects of absorbing large numbers of such immigrants, particularly those whose religious and/or political views conflict with the system of government established by the U.S. Constitution.

That the United States can insulate itself from the reality of low income levels in much of the world is an idea whose soundness I profoundly doubt. For me, the ideal way to deal with the pressures resulting from the vast differences in income levels around the world is the adoption of the invisible hand approach to economic organization in as much of the world as possible, by which I mean having national economies with free markets and the appropriate institutional structures to allow them to function smoothly. I also am firmly of the belief that the process of achieving such an outcome is immeasurably improved to the extent that financial capital and technological know-how are allowed to move.

My critics seem to oppose such international mobility of capital out of fear that when U.S. firms set up operations in foreign countries, they do so at the expense of the U.S. economy; i.e. they “export jobs.” Somehow, nevertheless, the United States seems to be able to achieve real economic growth at a relatively high rate for such a high-income nation and to do so with a relatively low unemployment rate. It is fitting, I think, to point out that the United States is a huge net importer of financial capital from the rest of the world; and we are, in fact, the world’s largest debtor nation. Total private saving in the United States is insufficient to finance our existing level of private investment. Consequently, we import savings from the rest of the world by giving foreign investors huge financial claims on us and encouraging them to invest here. That, incidentally, allows us to raise the American standard of living by importing substantially more goods and services from foreigners than we export to them. Under these circumstances, I don’t think it makes much economic sense to object when some U.S. firms engage in business operations in foreign countries. I do hope, however, that some Christian missionaries are allowed to go there also and that our government pushes the idea of openness beyond mere economic considerations.

Oh yes, I wrote earlier that I would present four valid arguments for protection, and I have only presented three. The fourth argument is protection for national defense reasons. Putting it simply, if the Chinese have a potential CA in the production of rockets that can be used to destroy communication satellites in space, I do not think we should give up the production of such rockets in order to import them from China! Enough said.

I shall close this article by returning to the theme that economists have done a lousy job of explaining CA to the public. In preparing this article, I spent a few minutes surfing the Net for a good illustration of this point and quickly came across a remarkably suitable example of what I mean that was authored a few years ago by Paul Krugman, the well-known Princeton economist and New York Times hatchet man, or should I say columnist?[2] Its title, “Ricardo’s Difficult Idea,” was inspired by Daniel Dennett’s Darwin’s Dangerous Idea: Evolution and the Meanings of Life (1995), which I have not read but have read about. Krugman evidently found Dennett’s work to be inspirational, for he begins his article on CA with the statement that “The idea of comparative advantage—with its implication that trade between two nations normally raises the real incomes of both—is, like evolution via natural selection, a concept that seems simple and compelling to those who understand it”; i.e. those intellectuals who, like Krugman, do not have an aversion to mathematical models. Krugman proceeds to demonstrate the breadth of his knowledge by recognizing that the resistance to accepting the validity of CA is different from the resistance to the acceptance of Darwinism. In the case of CA, he finds that it has tended to be rejected by some people “who do value ideas, but somehow find this particular idea impossible to grasp.” In the case of Darwinism, however, the problem is that the resistance comes from “people who simply dislike the idea of ideas” and whose blind opposition reflects “the persistence of creationism.” Much later in his article, he brings Darwin back and refers to Richard Dawkins, the prominent evolutionary biologist and militant atheist, as the type of popularizer for Darwinism that economics has needed for CA.

Personally, I find the idea of comparing CA to Darwinism to be ludicrous, and it is clearly not a move that is calculated to win over adherents of protectionism to the idea that CA is a valid concept that ought to have some influence over the formation of public policy. For people like Krugman, however, such people are hopeless, and the problems that they cause will ultimately be resolved by eliminating their influence on the making of public policy, no doubt via Darwinian evolution. At no point, incidentally, does Krugman point out that CA has broader applications than to international economics. Thanks a lot, Krugman, and so much for the notion that the enemy of my “enemy” is my friend.

Notes

[1]Steven M. Suranovic has written a series of good articles on international economics for the Net. On Torrens, see http://internationalecon.com/v.1.0/ch40/40c00a.html.

 

[2]“Ricardo’s Difficult Idea,” http://web.mit.edu/krugman/www/ricardo.htm.

Kanzei's picture

As I read Dr. Evans’ post above, as a protectionist, I wondered if I need to respond at all. Most of the essay is devoted to the support of protectionism on four valid points. But there are additional reasons to be a protectionist, which I will return to shortly, so I decided to respond. I also elected to respond because of the downright offensive way that my retorts in the past have been received by Dr. Evans, and because he chose to make ‘his critics’ a central point of his article. Let me begin on that topic.

In a past post, Dr. Evans indicated that I should “obtain a basic international economics text book”. He said that he did not wish to “engage in remedial education in basic economics”. Well, I own several international economics textbooks, but I decided to go on Google and find one that everyone reading this post could refer to. The first one I found, which is very much like all the others, was written by Steven M Suranovic, and is entitled “International Trade Theory and Policy”. I know that Dr. Evans respects Steven Suranovic, because he suggests him specifically as a source (see Dr. Evans' first footnote above).

In the first paragraph of the section entitled “The Theory of Comparative Advantage – Overview” the author tells the very same story about Paul Samuelson that Dr. Evans used, regarding Samuelson’s belief that comparative advantage is an example of a meaningful and non-trivial result of the economics discipline. Of course, Samuelson is correct, comparative advantage has been both meaningful and non-trivial. It is also false and destructive, but certainly not trivial.

Suranovic then begins his discussion of what Comparative Advantage is. Suranovic writes “First, the principle of comparative advantage is clearly counter-intuitive. Many results from the formal model are contrary to simple logic.” WHAT?! Suranovic BELIEVES in CA, but admits that is false?! If the model is contrary to logic, and logic is the study of propositions, and truth is propositional, what is contrary to simple logic is contrary to truth. In other words; CA is false. Many of you would probably be wise to quit reading right there. What else do you really need to know? This speaks directly to the very point of my assertion that CA is accepted as dogma. It is only by completely turning off one’s cognitive processes that a theory that is “contrary to simple logic” can be accepted as true.

Further evidence that Dr. Evans’ belief in comparative advantage in particular is a dogma that he has internalized, rather than a reasoned conclusion, is right in his essay above. First, he incorrectly states that CA is “a material fact”. Even the most rabid supporters of CA know that it is a theoretical construct. Nobody, anywhere that I’ve ever read, has ever claimed CA to be “a fact” except Dr. Evans. Remember, it was Dr. Evans that suggested I turn to a text book. This was the first one I could find. Do your own Google search and grab this text book for yourself.

In reality, comparative advantage was a theory created to answer a simple question: “why should a nation superior in the production of all things trade with a nation inferior in the production of all things?” In the Suranovic text, in Evans’ essays, in most any other international economics text, the idea of trade on the basis of comparative advantage is contrasted with autarky (no trade). The advocates of CA do not, generally, even address the realities of trade on the basis of absolute advantage (which Suranovic describes as a particular of the CA universal), or of protected trade. Instead they advocate only free trade, regardless of the degree of superiority one nation may have in its production possibilities. Most advocate unilateral free trade, even if one’s trading partners protect their industry (which China does, for instance).

This discussion of logic should really strike a nerve in the minds of preterists. The vast majority of Christians today are dispensational (or, at least the most vocal Christians certainly are). It takes a person with a dedication to the science of reasoning (logic) to question dogma and unemotionally question the beliefs of the majority, and of authority figures that should know better (like pastors and economics professors).

What is false in logic is false. Without even moving forward, the reader already knows, from the mouth of a dogmatic supporter of CA that it is false. Now the question is: Why? Another question is: Is there any evidence of the falsity in the United States now that free trade, which has been adopted on the basis of CA, has grown more and more widespread?

Dr. Evans gives three “numerical examples” of CA. Well, more precisely, he gives three examples that are purported to represent CA. Really, the second example about a football player and third about specialization in biblical study are not really economic, do not address or relate in any way to CA, and are so oversimplified I suspect the reader of his post is a little bit embarrassed. I won’t address them any further; they don’t deserve it. However, in Dr. Evans’ first example he uses numbers that represent an economic problem, but that do not represent CA. In his example, England (which can produce either 100 units of cloth or 100 units of wheat by investing quantity X of capital) has no comparative advantage! CA is an internal ranking, and a comparative advantage is present when a production possibility of one industry is greater than another in the internal ranking of a nation. In other words, unless England is more efficient at either cloth or wheat production, it does not have a comparative advantage in one relative to the other, no matter who it desires to trade with.

Truly, numbers can be made to do almost anything a clever writer wants them to do when he sets up the examples himself. And because when a major premise is false, all the subsequent reasoning can be accurate but a false conclusion still results, it makes no sense to go very deep into the numerical examples used to attempt to justify CA. If the reader is interested, Suranovic’s text goes much deeper using both numerical and algebraic reasoning. But remember, a faulty major premise, even with sound minor premises, results in a false conclusion. CA is “contrary to simple logic”.

Why? Comparative Advantage is reasoned from a conclusion. The conclusion is a worldwide market economy. WITHIN a market, there should be *exchanges on the basis of comparative advantage. WITHIN a market there should be specialization. Dr. Evans seems to think, in my analysis, that specialization equals CA. Truly, within a market, comparative advantage boils down to simple specialization, but WITHIN a market there is no trade. Trade occurs BETWEEN two markets. The truth of specialization WITHIN a market has nothing to do with trade BETWEEN markets (nations).

There’s an often told story in economics (which has many variations but the same theme). Three men are stuck in a 10 foot deep hole in the ground and they cannot escape. The first man, a mathematician, attempts to calculate how long they will live, and if they can climb out by climbing on top of each other. He decides it won’t work and is very distraught. The second man, an athlete, attempts to figure out if he can build up his muscles to jump out, but he realizes he doesn’t have enough time, and it won’t work. He is also very distraught. The third man, the economist has a solution. His answer begins with the phrase “assume a ladder…”

It’s dangerous when “assume a ladder” becomes “the ladder is a material fact”. THIS is what has happened to too many economics educators. The existence of a ladder that was really only an assumption has become internalized dogma.

CA ignores many realities. In my view, Ricardo intentionally ignored them, perhaps for the PURPOSE of being deceptive. Subsequent intellectuals certainly are guilty of this. ANY honest reading of Adam Smith, for example, cannot be completed without a tremendous respect for Smith’s strict belief in the benefits of domestic production for domestic consumption. Smith was a protectionist, although many dogmatic free traders who have assumed the ladder of comparative advantage will not accept it, due to their respect and admiration for Smith. This cognitive dissonance is very common in universities today.

CA ignores the reality of transportation costs. CA ignores the reality of LARGE variations of absolute advantage. CA ignores the reality of dumping, subsidization of exports, differences in law, and other inequities that exist BETWEEN nations and markets (but not within a national market system). CA ignores the political impact of free trade on the political economy (so much so that the study of political economy has now become the studies of politics, and economics, as though they are not related. Truly, many folks now graduate with economics degrees thinking that economics is a science of ends, not a science of means. If they were to go back to the foundational works in economics they would see that economics is a science of the means of achieving predetermined ends, some of which are political). CA assumes uniform technology. CA (and free trade which is the political goal of CA) ignores the marginal theory of value and drastically overvalues labor (in fact, Ricardo was a labor theory of value theorist, not unlike Marx). In short, CA assumes an entire hardware store of ladders.

I stated earlier that I wondered if I really needed to respond to Dr. Evans’ post. He spent roughly half of his essay defending protectionism and defeating comparative advantage on the basis of some of these assumptions. But I want to dive into the question of what made the United States the economic powerhouse that it was, and why CA (and its political corollary of free trade) are dismantling it.

Dr. Evans does not admit, although as a professor of Economics I know that he is aware, that the United States was formed as a sovereign nation with the goal of being independent. The economic means employed to achieve this political goal is now called protectionism. Revenue for government was raised by taxing foreign corporations for exporting to the United States consumer market. There was no Federal income tax, nor a need for it. Domestic capital was invested in domestic production facilities. When foreign products were consumed a tariff balanced the trade deficit and there was no loss of capital investment in production. Debt did not have to be issued to fund the operations of limited government and consumers did not consume future production (this is the meaning of a trade deficit in consumer goods. Today’s consumption is paid for by the work of future generations, and interest is paid on it. Sound good to you?). Under the Articles of Confederation, there was no social cohesion because there was not a common market. Each state had its own currency, its own banking and contract laws. There was no uniformity. The system was failing. Truly, to assimilate these states into a common union could NOT have been achieved without eliminating the trade barriers as a first step toward a common market. Instead of that incremental approach to a common system (as we see today globally, and which was successful in destroying the sovereignty of the European nations), a new system was formed. That new system, which was ratified in 1789 formed a common market and bound the United States into an indissoluble union. Truly, it would be impossible to break this union up, and when the south attempted to do just that (expressly by their refusal to collect the tariff, attempting thereby to form their own market) they were slapped down. The market is perhaps the most powerful force that creates a cohesive social nexus.

The great Austrian economist Ludwig Von Mises knew this. Von Mises identified four requirements of a free market economy: 1) private property, 2) no institutional interferences, 3) the division of labor and consequent free exchanges within it, and 4) a coercive government to adjudicate disputes. When a free trader states that we are part of a global market; correct him. We are not part of a global market until the requirements of a global market are met. However, understand that we are en route to a global market, and with it comes the global government part. CA assumes a global division of labor. Upon this basis, there should not be tariffs. Just as it makes no sense for Ohio to put a tariff on goods from Michigan, if Ohio and China are part of a common market, it makes no sense for there to be a tariff between these exchanges either. But nowhere in the United States Constitution is there the desire to be part of a global system of interdependence. Nowhere in the Bible is there this desire of God either, by the way. I would even suggest that the tower of Babel and the condemnations of the book of Ezekiel speak against it, but that aside for now.

Frederic Bastiat, a famous advocate for free trade and highly regarded intellectual said that free trade was not simply an economic agenda, but instead intended to create an indissoluble, ecumenical union of the peoples of the world. If you can’t take his word for it, whose word will you accept? By the way, when Ronald Reagan took office the United States was perhaps the world’s largest creditor nation. By the end of Reagan’s term, it was the world’s largest debtor nation (if not yet, soon thereafter). Reagan’s favorite philosopher? Bastiat.

Von Mises explained in detail that by far the most important determinant of wage rates and standards of living is the per capita, capital investment per worker. In other words, if you invest your capital in worker training, new plants, new equipment, and developing land into production facilities; you will prosper. Under 150 years of protectionism and the Hamiltonian economic system of the protected market economy, the United States became the world’s most efficient and productive producer of virtually all manufactured goods. Under CA and free trade, the United States then stopped investing capital in domestic production centers, and instead invested it in foreign production centers. It was Japan that got new production facilities. Today it is Mexico and China who are the beneficiaries of United States investment in workers. In the 1950s and 1960s roughly 33% of Americans worked, and they were paid as wages about 45% of GDP. Today, over 43% of Americans are working, and they are paid about 33% of GDP in wages. More people working for less take home. Dr. Evans and other dogmatic followers of CA and free trade (as a driving force of economic growth) have to believe that more people working for less of what they produce is better. In my view, that requires thrusting one’s head pretty deeply in the sand.

In Dr. Evans’ essay he states that the infant industries argument is a valid defense of protectionism. The infant industries argument states that protection of domestic industries has merit if those industries are newly forming. But free trade doctrine must believe that “good can be bad”, because CA and free trade advocate abandoning those protections later, regardless of any absolute advantage acquired, and ignoring the cause of economic growth and increased wage rates and standards of living. In other words, protect your industries while they are infants, build them up and increase standards of living, but let them be torn down later by consuming foreign products instead, so long as the labor employed in those foreign products is cheaper. After all, if a Chinese worker can live on $10 a day, it MUST be advantageous to invest capital there (well, it may be advantageous for a multi-national corporation, but not for American workers or consumers!). After all, the protection of the domestic industries will cause the domestic wage rates and standards of living to grow until they tower over the rest of the world (the United States is the case in point). Opening up the market to the free importation of products from command economies with standards of living that are only a fraction of the domestic standards will create exactly what you see happening; workers in the United States working more jobs, longer hours, and for less pay. Entire industries are outsourced and destroyed, and the political goals of moving toward inter-dependence (instead of in-dependence) win the day.

In fact, a nation that offered unlimited opportunity no longer does. Entire industries are being eliminated. There was a time, under the protected national economy, that the American dream of choosing your profession and earning enough money to care for your family was a reality. Now, if you want to work in textiles, for example, you need to move to China to do so. Your choice of professions is rapidly disappearing. Even the free traders admit: there is a shift to a “service economy” underway. Worse still, now most folks cannot support a family with only 1 income; now it requires two. When the wage rates continue to drop under CA, you’ll observe more and more families moving into one house with their parents and grandparents. It will take multiple wage earners to support their taxes, debt service, and to buy the necessaries of life. You’ll also continue to see deterioration in the standard of living. There will be more poverty, more crime, more fraud, and eventually immigration won’t be a problem, everyone will be leaving to find jobs elsewhere.

I also found it interesting that Dr. Evans mentioned the adverse social effects of massive importation of foreign workers (more and more often, illegally). I agree, there are serious adverse consequences to creating an illegal underclass of undocumented workers that do not even speak English. But he does not recognize the massive social cost of consuming foreign production without a tariff to balance the trade. We have a Social Security crisis in this country that will result soon in the increasing of Social Security taxes or a decrease in benefits (or both). How much of the price of a product produced in China is paid to Social Security? (none) How much of the price of a product produced domestically goes to this purpose? (some). What about the property tax paid by the manufacturer? How much of it is invested in the domestic education system from a foreign producer? How much do foreign producers pay to the domestic health care system? How much domestic infrastructure is created by foreign production? CA ignores all of this as well. It “ignores the 10 foot hole, and assumes a ladder to get out anyway”.

Finally, as was evident in Dr. Evans article, free traders always say that because foreign holders of U.S. Dollars have to “reinvest them” here, there is no disadvantage to a massive trade deficit. (never mind of course that the enormous Federal Debt that results requires drastic inflation of the currency, which destroys the standard of living) But this reality of debit/credit accounting has no deeper meaning in economics than just that. When those dollars are “repatriated”, it is in the form of the purchase of bonds (used to pay for consumption, not capital investment, due to the deficit), in the form of land, or in stock/equities. They either buy our companies, buy our real estate, or finance our over-consumption, (or they can hold the dollars at a loss of course).

As more and more people see the anecdotal destruction of the United States manufacturing base, and start to ask why, CA will become completely discredited and the debate will focus on its true location: nationalism versus globalism. The answers from free traders as to why the United States is not competitive are being destroyed all the time. They say it’s because of U.S. labor unions, even though China is the most unionized nation in the world. They say it’s because U.S. workers are lazy, which is such a nasty and stupid thing to say that most people immediately turn their heads away. They say that we get “cheap products”, which denies the reality of profit making corporations and the marginal theory of value. There is a growing backlash to the planned forcing of the United States into a global system of interdependence.

I’m glad that Dr. Evans afforded me the opportunity to respond on this website on this topic. I hope that the discussion has been a benefit to the readers.

Kanzei's picture

The President’s Economic Report to Congress for 2007 is out and available for download.

{ http://www.whitehouse.gov/cea/pubs.html }

In other news, Bush is asking for fast track authority renewal to further expand free trade agreements.

{ http://www.news.yahoo.com/s/ap/20070212/ap_on_bi_ge/bush_economy. }

His intentions include a free trade agreement with South Korea.

{ http://news.yahoo.com/s/ap/20070213/ap_on_go_ca_st_pe/schwab_trade_2 }

Bush says that expanding free trade will “improve our competitiveness in the global economy” and that we need “further trade liberalization, particularly in services” which will bring “even larger gains to American consumers, firms and workers”.

Also this week, the Commerce Department detailed all those gains the President speaks of. The U.S. trade deficit set a record for the fifth straight year in 2006.

{ http://news.yahoo.com/s/ap/20070213/ap_on_bi_go_ec_fi/economy }

Senator Schumer seems to see the problem, and notices the President’s rhetorical double speak. His solution is not to stop free trade, however. Said Schumer: “We need to shift focus so that working Americans start to feel as good about our changing economy as those at the very top do”. I suspect that the unemployed, and those working 2 jobs to keep food on the table, are not going to feel “as good about our changing economy” as the international bankers and CEO’s whose stock options are quadrupling in value due to all the cheap labor they are utilizing in the far east in this “changing economy”.

Virgil's picture

Michael Kruse made an excellent post on his blog that relates to Al's fears of how India will destroy the U.S.:

India a Superpower? Think again!

Check it out!

EWMI's picture

I hope you don't get the feeling that I think that India is somehow out to get us :) My real concern is the elimination of our middle class. It would not matter if these guys were Laotian or Thai or Mexican for that matter. I am extremely concerned for the survival of Western Civilisation. It is not Indians or Chinese who choose to take our jobs. Our jobs are offered to them at a lower rate. Who offers and why are they allowed to do this?

Islamaphobe's picture

Al,

The "middle class" is not disappearing, but certainly there is a lot of dynamism in the job market. The unemployment rate in the United States is actually considerably lower than it generally has been during the last thirty to forty years. It stood officially at 4.6 percent in January of this year. By comparison, it was 7.3 percent when Bill Clinton became President. For a long time, economists did not think it could fall below 5 percent, and some of them called a rate at that level "the natural rate of unemployment." Now I know you can perform a lot of hokus-pokus with statistics, but I genuinely believe that that the unemployment rate in the United States is low historically. There has been some decline in the labor force participation rate since about 1998, which suggests to me that the pressure to find jobs has diminished a little.

The doom and gloom crowd can always find reasons for believing that things are deteriorating, but it is simply untrue to claim that the economic position of the average person in this nation is getting worse. We've lost lots of manufacturing jobs, that's for sure, but many of those were relatively low in their skill requirements, and lots of new jobs have become available.

I am very concerned myself about the survival of Western Civlization, and that is one reason why I favor a considerably more selective immigration policy than we have in the United States, and judging by what I read about problems with Muslims in Australia, my guess is that you folks down under have some reasons for concern as well.

JSE

EWMI's picture

Yes we have serious problems with Muslims in Australia. One of the concerns is that we along with the rest of the west are being forced to take in refugees from nations we are destroying. The US is taking in 7000 Iraqi asylum seekers which is small except that it is 10 times the number of those taken in 2003. How many of them come with a desire for revenge? How would we know? More importantly who are the great promoters of anyone other than "integrateable" non Christians into our countries? Who are the cheerleeders calling for us to take in more Muslims, Hindus, Buddhists etc who hate our culture and civilisation? How is it that we ignore the fact that local cultural hegemony once destroyed spells the end of that host nation? How is it that two border guards who shot a Mexican drug dealer in the rear are sent to prison for violating the dealers civil rights when only citizens have civil rights?

Why are our lands being white-anted? How can we survive against the barbarians outside if we are committed to importing them?

How come a guy opposed the immigration of certain elements is a racist while the guy who bombs the same people in a civilian market in a far away land is a war hero?

What's happening?

Islamaphobe's picture

One thing that is happening is that political correctness (PC); i.e. political liberalism, is completely overwhelming common sense in our (overwhelmingly secular) news media, our educational institutions, and among our political elites. One place where I strongly disagree with you Al is in your insistence that "we are destroying" such nations as Iraq. These nations are DESTROYING THEMSELVES! They are doing so because they do not know Jesus Christ.

We cannot overcome these problems by trying to shut ourselves off from the rest of the world with economic protectionism. We can, and definitely should, limit immigration to those people whose beliefs are compatible with the preservation of our civilization, and by that I do not mean to limit immigration to people of European descent. I have known lots of non-European types who are great Americans, and I have known plenty of "whites" who despise this nation's culture and history. And we can strive to reform our own institutions of government so that they reflect our cultural heritage rather than PC.

JSE

tom-g's picture

Dear Dr. Evans,

If I understand your position as an economist:

You create a distinction between the economic immigration of undesirable workers which you say should be controlled and protected, and the uncontrolled unprotected economic immigration of desirable workers to obtain employment.

While at the same time you are totally in favor of exporting those same jobs, without making any distinctions, to undesirable foreign workers if the jobs are performed in their native country and not here. Thus, it is a domestic job being performed domestically by undesirable foreign immigrant workers, that you oppose and would protect our country from.

You are in favor of taking the domestic jobs to foreign workers without distinction, right? But you are opposed to bringing the foreign workers to the domestic jobs unless they meet with your approval, is that what you are saying?

Is that like partial protectionism? Or partially pregnant? Or partial Preterism?

Unfortunately that expression of the supremecy of the dictatorship of capital to be able to flow any where in the world to maximize profit, while restricting flow of the other scarce economic factors of land and labor is the current free trade gibberish the educated elite is advocating.

So, you are not alone.

Tom

EWMI's picture

It would certainly be nice to find a way to maintain a harmonious culture. ... not sure how though ...

Of course we will always disagree on where nations are destroying themselves etc. I've probably said the following stuff before :)

For sure some of these nations are destroying themselves. But Iraq was never one of them. There was no country in the Middle East that offered a better model for Arab peace that Iraq in the 70's. It was secular, had some of the best schools in the world, a leader who we could not do enough for and a leader who could not do enough for us.

It was open to Christians and was seeking further relations with the US and Israel. While internal tensions existed it was solid and could have remained that way.

Iraq was not a Muslim country, it is now. It resisted Islamic militancy but fosters it today. It was home to Christians but no longer.

Islamaphobe's picture

The Iraq you describe of the 1970s was not the country Iraqi students described to me, and our government was never really under illusions about Saddam. We did know, however, that the government of Iran under the mullahs had held the people of our embassy captive for many months. That was an act of WAR! The government of Iran has continued to war against us ever since, being careful to avoid overstepping the limits--seemingly almost unlimited--of our tolerance.

Al, to say that Iraq was "solid" in the 1970s is, in my opinion, ridiculous. There will never be a predominantly Muslim country that is "solid." Anyway, I'll never convince you and have other things I must do. So this is the end of the line this time around.

EWMI's picture

I am not saying it was a paradise, it was probably something between Jordan and Lebanon. C(hristians however were protected and many asked for Saddams return as recently as November 2006.) Of course Lebanon will be reinvaded and radicalised any time now.

That act of war you mentioned was dealt with via negotiation and a little back room deal called Iran Contra.

The link below leads to a large cache of declassified docs about Saddam.

Quite a number but worth a read.

http://www.gwu.edu/~nsarchiv/NSAEBB/NSAEBB82/

PS did you see that stink piece showing the alleged Iranian ied with English writing and the Gregorian calendar dates on it ... priceless.

EWMI's picture

Since the Reagan era (and perhaps before)unemployment reporting has been cludged. Even beyond that, the official unemployment rate was 4.6 for January as per the U3. The U6 however is far more realistic reporting 8.9%. How do the governments (yours and mine) have the audacity to consider that some guy who wants a full time job (but has to flip burgers 3 nights a week to feed Indian or Mexican Drivers in a truck stop) as employed?

EWMI's picture

U6 is 8.3 not 8.9%

Islamaphobe's picture

Virgil,

Thanks for the lead to Michael Kruse's blog, which, no doubt, is supported by some big international corporation that is doing its best to undermine America's Christian heritage. Seriously, though, India does seem, at last, to be emerging from its socialist slumber brought on by its long-term secularist Brahmin leadership. There are obviously problems, as folks like Al and Tom-g are very anxious to point out. Aand go to persecution.org, for example, and you will find numerous examples of militant Hindu persecution of Christians. But that persecution reflects the FACT that Christianity is growing among Dahlits and others and is perceived to be a threat to the social status quo.

Meanwhile, the government of India faces the delicate task of dealing with a large Muslim minority whose cultural backwardness and potential for violence threatens its social harmony. But with Pakistan and Kashmir next door and militant Islam on the march, I confidently predict that India and the United States are destined to move closer to each other politically.

JSE

EWMI's picture

Before The Article, I am a hard core protectionist. I have read several articles like the one following, it demonstrates one of the disconcerting trends in global labor movement. CA assumes that labor is reasonably static.

'Will India Destroy the United States?'
By Guest: Simon Jones on Dec 30, 06

The title to this article may sound extreme. You be the judge. After responding recently to articles about the Indian invasion of America, I was finally encouraged to write an article about my experiences in the high-tech industry. Because of severance agreements, the names of my former company and former coworkers have been changed.

I am a computer programmer, and have been for 15 years. I worked for a company TechnoDataCode in California for 6 years, and I was the director of one of the R&D projects.

About a year ago, most of the other American employees and I were fired and replaced with people from India on H-1B and L-1 visas. The people from India were making only a fraction of what we Americans were making. I was making $110K a year; my replacement, $37K. The people under me were making about $75K; their replacements, about $29K.

To keep my severance pay, I was required to stay on for an additional six months (after the other Americans were fired) to train the replacements. This was probably the most humiliating experience of my life.

What I describe above is happening now every day. Many of my friends in high-tech have also recently been fired, and are being replaced with cheap imported labor from India or China. Microsoft says there is a “high-tech shortage,” which is a lie. Almost every American programmer I know is now unemployed and has been replaced by a cheap import. There is not a “shortage.” Big business only wants more cheap labor.

But the story only gets better....

You would think that the Indians would be appreciative of being allowed to work in the United States, but this was very far from the case. Most of their conversations involved extreme hatred of America, Americans, and anyone of European descent.

Here are some examples of their daily conversations:

* Indians are the real “Aryans.” The Human Genome Project shows that Indians are closely related to Africans. Thus Indians and Africans are the real “Aryans.”

* All people of European descent (i.e. all whites) must be exterminated

* Blond hair and blue eyes are inferior traits. By the year 2090, all people with blond hair and blue eyes will either be bred or executed out of existence.

* One day India will invade and take over. It is India’s destiny to rule over whites.

* Christianity is a disease that can only be cured with a bullet

Although most of the Indians were Hindu, a few were Muslim, and they were quite openly fond of Bin Laden. The Hindus, however, seemed to hate white Americans just as much as if not more than the Muslims. On this they could agree.

And then there is the story about Praveen.

Praveen, a Hindu from Northern India, was often very “touchy” with me and the other Americans. He was always shaking our hands and patting us on the backs. I noticed too that after touching me he often left “red marks” on my clothes, and on others’ clothes.

There was also a break room that only a few Americans frequented. (Indians never visited it.) And Praveen was always in there tampering with the coffee machine.

After seeing him one day pricking himself with a safety pin to make himself bleed, it all came together. He was trying to transmit his blood to others - either by direct contact or by putting it in the coffee machine.

Come to find out, he was HIV+ and was trying to transmit it to the Americans.

Praveen went back to India shortly after that, so no criminal action was able to be taken. But a few of the other Indians did transmit HIV to a couple of the American women - and seemed very proud of it.

Management of the company was informed of this, but they did very little to look into it. When I told our CEO that I suspected that the Indians were spreading HIV around the workers, he called me a “racist” and told me to be quiet.

I’m sure he was aware of what was going on - but simply did not care. Cheap labor is cheap labor, that that is the bottom line for big business.

The only loyalty of big business is profit, and they could care less about American workers, American values, or the well-being of the United States.

And what about the future of America?

Are we going to auction off every American job to low-paid imports until there are no good American jobs left? Are we going to let third-world hordes take over our high-tech sector until not a single American is left in any important position?

The only effective and patriotic way to stop this is by massive deportations of all the cheap labor from India and China. Otherwise, with the help of big business, we are well on our way to becoming a third-world country.

http://newsbyus.com/more.php?id=6565_0_1_0_M

tom-g's picture

Dear EWMI,

Unfortunately your experience is all too common. The difference in remuneration in your example is actually closer than is common.

In our city, Cleveland, the school board went to India and recruited teachers of math and science to come here to teach our kids in our school system. Their rationale was that no qualified American teachers or graduates from American colleges were available. All of this while the schools were in the midst of laying off quantities of experienced teachers.

An article by M. Malachi Mixon, the CEO of Invacare, appeared several months ago in the business section of the papers. He was asked why he had switched his production to China. His answer was that in Germany the average wage rate was $30 per hour, in the US it was $14 per hour while in China it was $0.57 per hour.

Dr. Evans of course can't address any of this and justify it from his anti- American globalist economic perspective so he thinks he can just avoid it and refuse to answer and the problems will just go away.

With the huge success of Internet education it will not be many more years before all American children will be educated by foreign teachers via their computers.

A statistic I read some time ago said that the persons with the highest rate of unemployment were those with a doctorate degree. I guess that's why college professors have formed unions to go with their tenure for protection.

Oops, I shouldn't have used that dirty word applied to college professors, that's reserved to describe those greedy inefficient average American hourly workers whose jobs are being exported to slave labor, Christ rejecting, atheistic, Hindu and Confucianist and communist nations.

If only Nixon hadn't learned how to play Ping Pong in 1972. Or maybe if he hadn't closed the nation's gold window in 1971 and replaced gold with foreign world debt as the foundation of the American dollar?

Tom

EWMI's picture

We have an interesting thing here with medium skilled workers. You may be aware Australia is riding high on the hog while the rest of the planet is still functioning well enough to buy our resources. The mining companies are not employing locals but instead are bringing in Thai workers at about 1000 a time. The reason they like Thai's is that their language is not spoken here so it is hard to add a local to the crew.

Virgil's picture

This is old news - the quality of Indian support and labor is questionable and many companies are letting support contracts expire and moving support back tot he U.S. realizing they have made mistakes.

Al, THE MARKET ALWAYS WINS - by that I mean, the balance of the free market will always find the groove, and that groove is where freedom guides it. Quality of support and labor overrides price in this instance, and U.S. corporations are slowly moving back after learning their mistakes.

EWMI's picture

Well, I am not so sure how old. There were over 65000 H1B visas granted for fiscal year 2006. And we are constantly hearing about more requests for the same. Last year permission was granted to increase the level to 115000 annually with a %20 increase every year.

This hardly supports the notion that IT profs, are heading back.

Virgil's picture

That's great news!! Either way you look at it, those great paying jobs infuse cash both into the U.S. and Indian economies, creating more jobs in both countries. How this is bad news, I cannot see :)

EWMI's picture

WHAT?

Corporate Profits for ABC Widgets was $20Million in 2004. Their IT HR budget was 10% = 2 Million 15 Staff members including on costs etc that is an allocation of $133,333 each per year.

Instead they dump the locals and bring in 15 Indians at 45K each. Total HR budget is $675K.

Corporate profits are now $21.3Million. Looks good but:

The 15 US staff members were not sending the money out of the country.
They eat at the Olive Grove not Macks. They own houses and cars etc.

The Indian money in not as frequently distributed here. It is drained back home. We lose our edge because we no longer have the trained professionals who understand how our country runs. We don't only drive down wages we drive away knowledge to our competitors. Demonstrating more of the hidden evil of free trade BTW.

What of the corporate profits? They are not distributed as freely into the community by the corporations, many of whom are spending them in India or China. Again a loss to us.

Our IT professionals are now burger flipping. The Government, in bed with mega business simply lies about employment figures. If some poor slob that used to have a $75K IT job is now burger flipping for 3hours twice a week feeding Indians at Mackers we say that he is employed.

It is so bad now in the US (And others like Canada and Australia) that a significant number of the fittings used on American made battleships are now made in China.

The largest Export from many US ports is empty containers. Countries like Russia are now buying American Auto assembly lines while free trade continues to facilitate the whiteanting of our dominant industry.

It can't go on and will soon collapse.

Windpressor's picture

**************

FWIW, a recent piece on Jim Lehrer News that seems more relevant than anecdotal.

The quotes below don't do contextual justice to the transcript so I recommend a full review. It is a quick read. Video streaming is also available from the web page.

Online NewsHour: Conversation | CEO Weighs Globalization Issues | February 6, 2007 | PBS

============
"Globalization has had varying effects on countries and economies throughout the world. In the first of a series of conversations about the consequences of globalization, NewsHour correspondent Paul Solman talks to Farooq Kathwari, CEO of Ethan-Allen Interiors Inc.

...

PAUL SOLMAN: So what does Farooq Kathwari think of globalization? For starters, he defines the term very broadly.

FAROOQ KATHWARI: Globalization is more than the issue of just buying products cheaper from one country and marketing them in another country.

PAUL SOLMAN: So, if it's more than that, what is it?

FAROOQ KATHWARI: Globalization to me means the world has now become smaller. ...

...

"FAROOQ KATHWARI: Absolutely. You know, Kashmir also teaches you something else. When I was young, I used to climb mountains and going to school was a hike. When you climb to 15,000, 20,000 feet, if you go too fast, you can get water in your lungs and you die.

So globalization is that kind of a change. You're going up a mountain. And if you go too fast -- and, unfortunately, today, around the world, we see a lot of changes are being made fast -- people are getting water in their lungs. And, you know, a lot of them, unfortunately, are dying because they are also not understanding another factor of a mountain: To save yourself, you've got to come down."

...

FAROOQ KATHWARI: ... In our industry, we are most probably the only one which has made the amount of change we have made and maintained profitability. Almost everybody in our industry -- ... -- they have lost profitability, yet their reasoning was to increase their margins.

PAUL SOLMAN: What did they not figure in? Where were the costs, people stealing from them?

FAROOQ KATHWARI: Again, I'll use nature, because I'm a farmer, a part- time farmer. I grow -- I have an apple orchard up in upstate New York. And one of the farmers that worked there, who taught me pruning trees, said, "You know, when you prune this tree, don't prune it at one time. You're going to kill the tree."

American manufacturers, American industries, have closed their plants too fast. It is like pruning that tree. And what they've done is, in many cases, they have killed the tree. So we don't want to kill our tree."

[Summarizing on globalization later in the interview]:

PAUL SOLMAN: And globalization is conflict?

FAROOQ KATHWARI: Globalization is the biggest conflict that we can think of. Environmental conflicts, trade conflicts, rule of law conflicts, expectations conflicts, all of those, to me, are part of globalization."
=============

Kathwari notes conflictual issues.
Does CA, in particular, or a free market ideal, in general, ultimately gain over the realities of subsidization by despotic and desperation economies?

I think it would also be informative if the matters of what you classify as "diseconomy" were expanded upon and quantified. Is this synonymous with what I have previously conceptualized as illusory cost savings or "cost shifting"?

Concerns comparable to James 2:6 & 5:4 come to mind

G1

...................

G-Juan Wind

Islamaphobe's picture

Readers who find this article and the comments to it to be of interest will, I think, find the article by Niall Ferguson and Moritz Shularick that recently appeared in the Wall Street Journal to be of interest also. See the issue of February 5, 2007, p. A17. It is the authors' contention that the complementary economic relationship between the United States and China undergirds has been highly beneficial to both countries. They claim that although China and the U.S. together have only one-fourth of the world's population, they accounted for over 60 percent of the cumulative growth in world GDP during the past five years.

The authors see two potential threats to the stability of this relationship (This is aside from any political problems.) First, for the sake of short-term political gains, Congress may push hard for protectionist action against China. Second, as China liberalizes its financial system, it may become vulnerable to inflation.

JSE

Islamaphobe's picture

I'll elaborate on my own comment by adding that Ferguson and Schularick state that in recent years, China's currency reserves have been growing by $200 billion per year and that Beijing holds about 90 percent of its total massive accumulation of currency reserves in the form of dollar assets. It does not take much imagination to conceive how the adoption of protectionist measures against China could have some very "interesting" effects on the world economy. I guess if we had to, we could always expropriate China's holdings of dollar assets (That is tongue-in-cheek!).

tom-g's picture

I am sorry Dr. Evans, I find I just couldn't suppress my Christian impulses.

After I wrote my last comment I went into my library and retrieved my copy of a book written by Dr. Ravi Batra in 1993: "The Myth of Free Trade A Plan for America's Economic Revival" (MFT-Tom). Dr. Batra is a professor of international economics at SMU in Dallas, Tx. where he became a full professor at age 30 and rose to become head of the department. (The head of the dept. of international economics at an American Univ. today? Oh, oh, he sounds like a candidate for one of your remedial classes in elementary international economics).

According to the fly leaf information, Dr Batra is also the author of "Studies In The Pure Theory Of International Trade" and "The Theory Of International Trade Under Uncertainty". (This is obviously where he went wrong - his concern was economic thought not real life) The information continues that Dr. Batra's book "The Great Depression Of 1990" was on the NY Times best seller list for 52 weeks.

The fly leaf information continues on that with this book (MFT) Batra "boldly challenges the myth of free trade. The Startling evidence he sets forth shows that the United States is on the edge of economic disaster." (While this book was written in 1993, my 1989 debate "Free Trade the destruction of the United States" with Professor Richard Ebeling who is now the president of The Foundation for Economic Education, FEE, but was at that time the Ludwig Von Mises professor of economics at Hillsdale College. My bio among other things listed me as the editor and publisher of "The American Protectionist" a monthly magazine)

The MFT fly leaf goes on to say: "Although mainstream economists-and highly paid corporate executives-trumpet "free trade" as America's best possible source of prosperity, Dr. Batra insists the policy may have damaged our economy as severely as the Great Depression. Almost every economic problem we face-the outrageous federal deficit; rising unemployment; the shrinking middle class; the "merger mania" that slashed jobs, killed competitiveness, and increased corporate debt; and environmental degradation- can be linked to the free trade policy that the United States has been following over the last twenty years. (1973-Tom)
Batra sets forth a compelling plan for "competitive protectionism" and prescribes a radical but well reasoned five-year plan for economic revival."

Listed as the first and foremost prescription to accomplish those goals is "average tariffs on imports should be raised from 5% to 40%." Dr. Evans took great exception to my statement advocating the same average 40% ad velorum (On value). In Dr. Batra's introduction he has this to say on this issue: The United States "would be able to cure virtually all its economic ill in a short time. Productivity, wages, real incomes would soar, while the budget deficit and energy prices would plummet. Similarly, the foreign trade deficit would vanish, and, above all, global pollution would come under control. All this from the simple step of raising the tariff rate from the current average of 5% (1993 but now approximately 2-3% -Tom) to about 40%.

Earlier in his introduction Dr. Batra makes this claim "If your wages sharply fall while you work harder and become more efficient, something is very wrong with the system. That is what free trade has done to America." Economists will tell you it is not falling wages in monetary terms that is the problem but, a decline in the value of the monetary unit that those wages may purchase. So you may be earning more dollars today but they don't buy as much as the smaller number of dollars used to buy.

In a market system founded upon voluntary cooperation, as was our original economic system under protectionism, rather than a collectivist command system now under free trade, it is the fragile relationship between wages and prices that determines how much labor ( not just unions but all those who are paid wages) is able to consume of the total production of goods and services.(GDP)

I know Dr. Evans that you do not like to think that real life economic actions occur as a result of the current prevailing economic thought of the policy makers, but that's the way it is. So some years ago, 1989, I decided to test this wage/price ratio for my self to see if I could determine the effect of free trade on American labor's wages. If I found that the American worker's wages have suffered as a result of freeing up trade then the theory of free trade is invalid. The source I used was "The President's Economic Report to Congress", prepared by law by the Council of Economic Advisors.

From these statistics I used the Census figures, collected every 10 years by Constitutional requirement. The employment figues, giving the total number of employed Americans, from which both the employment and unemployment data is determined. The total annual GDP in nomiminal terms (dollar amounts in current year figures to eliminate any variable inflation distortion). And finally the average weekly wage figures, again in nominal terms.

Dr. Evans, before you avoid the information being presented or go off on one of your non-sequiters on the grounds that it expresses the LTV, let me assure you it does not. Neither the objective LTV, nor the subjective marginal utility theory.

My Goal was simply this: An answer to my personal question of how much American labor was required to produce the GDP and consequently how much of that GDP was paid to labor in wages? Surprisingly this question had never been asked and required original research on my part to answer. In a simple analogy a lender through his rate of interest answers the question what's in it for me to lend my funds? Capitalists through their percentage of profit answer the question what's in it for me to invest my capital" Both of these groups vary their rates continualy, sometimes even daily. But labor rates are static usually only annually determined, therefore, my question was from the labor perspective, what's in it for me to go to work? Capital can stop investing, lenders can stop lending but labor can not stop working.

The results I found were shocking to me and devastating to the vast percentage of Americans who work for a living to support themselves and their families. Based upon the readily available figures, begining with the 1920s, until approximately 1964 (immediately succeeding GATT) the figures were reasonably constant with very little deviation. From 1964 until now they have continually varied with wasges paid to labor continually declining.

Statistically this is what I found. Until 1964 it required approximately 33% of the population to work and produce the GDP. That 33% of the population earned approximately 45% of the GDP, or of what they produced. That translated into a large middle class with a great many single wage earner families. Mothers were able to stay home and raise their children and take care of their homes.

Since begining to implement free trade those figures have been constantly turning around such that now, with over 155 million workers that figure represents more than 50% of the 300 million population. While at the same time that 50% of the population earns only approximately 33% of the GDP or what they produce. This has translated into a shrinking middle class with the greatest number of these families required to be two income families which has taken the mothers out of the home and is responsible for much of the social problems we face today.

Going from a protected system with the average worker being paid the equivelent of 45% of what he produces to a free trade system with the average worker being paid only 33% of what he produces is a devastating alteration. And the alteration can only worsen as we accomplish more and more free trade.

What would it mean if today's worker equaled 33% of the population and was paid 45% of the GDP, then today's average wage would be approximately $60,000 thousand dollars a year or $1154 dollars a week, more than double the current average weekly wage.

My independent research was performed before Dr. Batra wrote his book but, certainly confirms his research conclusions.

I am sorry Dr. Evans I honestly had not intended to write on this and particularly not at such great length, I have other economic avenues for this, such as this year's CPAC conference in Washington DC, where I will be exhibiting. But, I just could not in good conscience leave your paper unchallenged.

Tom

Islamaphobe's picture

Tom,

I have never read any of Ravi Batra's books, and I dismissed the best seller one as being trivial when I read reviews of it a dozen or so years back when it was doing well. I note that there have been a few other books by economists who made the NYTimes best seller list that were not great advancements in human knowledge. I have in mind such works as Galbraith's "The New Industrial State." Oh, but I guess to mention Galbraith is one of those "non sequiters" that I like to use because I think they might be informative to readers. I have no doubt that Batra is quite proficient technically, but if I had written a book in 1993 predicting "The Great Depression of 1990," I don't think I would want to be reminded of it or mention it to others.

As far as I am concerned, productivity, real wages, and economic growth in the United States have done quite well since the 1990s, especially in comparison to most other high income nations, and I think most people believe this to be case. You will accuse me of ducking the issue, but I am not going to debate with you the proposition that somehow our working families must be economically worse off than before we started liberalizing international trade BECAUSE we liberalized trade. I am copnfident that real per capita income is up across the line. I personally am not happy about the executive pay situation in top corporations and the many abuses of market power that we have in our economic system. On the other hand, I do not believe that the share of GDP going for the compensation of workers has declined since the early 1990s as you seem to be suggesting. I feel quite certain, incidentally, that the social problems that we face today and the allegedly shrinking middle class are caused more by out-of-wedlock births, the breakup of families, and various other negative influences than by housewives being forced to work to keep the family swimming above water. We also have a huge immigration problem involving large numbers of relatively unskilled workers and people whose cultural values and religious beliefs are at odds with what made this country what it is. I do not see you addressing this problem, which logically, it seems to me, tends to have a depressing effect on real wages in the lower half of wage earners. You seem to want to blame all problems on the reduction of tJSrade barriers.

Oh, by the way, to introduce another "non sequiter," how would setting up an across-the-board tariff wall that you advocate bring "global pollution under control." Is your idea that the government of China would then devote itself to more to cleaning up the environment there and less to constructing those awful factories that send goods to Wal-Mart and other big corporations, thereby depriving American workers of their birthright? And what would the government of China then be expected to do with its holdings of a trillion dollars worth of dollar-denominated assets?

JSE

tom-g's picture

Dear Dr. Evans,

I cannot believe every Preterist is not up in arms at the hermeneutics evidenced by your response. You have not personally read any of the work of a fellow economic scientist to test the truth or falsity of his position because you have read main stream reviews that did not agree with it? Therefore you do not? With that philosophy of not reproving, correcting with true doctrine, how do you prove the falsity of that which he claims or the truth of what you claim?

I will be quite explicit with you, in your original posting you make the very positive statement, that you even use the technique of bold face type to emphasize:

"Putting it simply, nations that have relied upon CA and adopted relatively open economies have tended to do relatively well economically while nations that have adhered to protectionism have not."

I say to you that that is clearly and provably a false statement.

I challenge you as an economic scientist to speak specifically to your own assertion and prove that your statement is true.

I say to you that the economic history of our own nation, "The United States of America", proves the falsity of your specific assertion that nations who have adhered to protectionism have not tended to do well economically. Specifically identify the nations who have done well and prove it is because of adherence to CA. Then specifically identify those nations who have not done well because they have rejected CA and adhered to protectionism.

As a scientist in your field and as a teacher, I challenge you to prove that the protectionist economic history of the USA does not directly and positively prove the falsity of your assertion.

I have continually and repeatedly asked you that question and you have continually and repeatedly avoided, circled and refused to answer it. Why?

I await you specific answer to this specific question about your own specific assertion.

Tom

Islamaphobe's picture

Tom,

Putting it simply, I cannot prove something to you to be true if you simply refuse to accept it. You have made your case, and I have made mine. What I assert as fact you simply deny, and what you claim to be fact I declare to be nonsense. Call me whatever you want. I shall make my case and you can make yours. As the old saying goes, when you are standing at the North Pole, every direction is south, and you are at the ideological North Pole. You're committed to your cause, and that ain't gonna change. Bye for now.

JSE

tom-g's picture

Dear Dr. Evans,

Again as always, you have evaded and refused to give an answer to my specific question, as I knew and predicted you would. I did not attempt to make my case, I asked "YOU to make "YOUR" case, and I challenged you as a professional and teacher to do so.

I simply asked "YOU" to supply the facts that confirm the conclusion "YOUR" assertion by indirect association made, that the USA with its economic protectionist system has never tended to economically prosper. Which I already know that a science, falsely so called, based upon the love of money can never do.

This has ever been the method that the philosophical secular humanist enemies of our nation, founded upon the religious; political; social; and economic principles of God, have used.

You surely don't literally believe in God, that opiate of the people, do you they ask? You surely must believe in separation of church and state, don't you they ask? You can't possibly deny the scientific fact of evolution can you, they ask?

Then there is the most devastating and pervasive secular humanist argument of all. You certainly don't think a protectionist nation that comes out from among the other nations of the world, a nation that calls itself by His name and economically protects its worldly separation and consecration to the principles of God, can ever prosper, do you? Surely you must agree that economic science proves it's economically impossible, don't you?

Yes, I do believe that God desires that a nation that calls itself by His name should be separated from all of the ungodly nations of the world, as the history of Israel given to us as an example clearly proves. And yes, I do believe that God has shed his grace upon our nation causing it to prosper above all other nations of the world as long as we maintained that called out separation.

You however, Dr. Evans, deny that God's shed grace ("America, America, God shed his grace on thee") can ever cause such a separated nation to prosper. Only as all nations join together, you assert, into an international economic system based upon the man made law of CA according to science falsely so called, can a nation expect to prosper.

Israel lobbied God to give them a king so they could join with and become like all the other nations of the world. But, as an example for us, God tells us in the prophet Hosea: "I gave thee a king in mine anger and took him away in my wrath".

I know in whom I have believed and am certain that no system glorifying the love of money based upon the falsely so called scientific principle of CA in whom some have erred concerning the faith, can ever be proved true.

Tom

Islamaphobe's picture

Tom, there is no arguing with you. It is pointless. After this latest diatribe, I shall simply ignore future rants. Good luck.

JSE

EWMI's picture

Greetings John,

I don't think Tom's requests to you are unreasonable. This statement has left me breathless:

"Putting it simply, nations that have relied upon CA and adopted relatively open economies have tended to do relatively well economically while nations that have adhered to protectionism have not."

I too am keen to know about the relatively open economies and their relative wellness.

tom-g's picture

Dear EWMI

I have read Dr. Evans response to you and it is horrible to realize that according to the leading free trade think tank, Heritage Foundation using their own free trade criteria, the dismantling of our traditional protectionist economic system is almost complete.

Only three more nations to overcome and the alteration will have succeeded. Of course it will probably be impossible to overcome communist Hong Kong now that it is wholly owned by communist China. Isn't it nice to know that communistic Hong Kong residents, with their slave labor wages, have more individual liberty and freedom than we do here in the US? For the free traders, they can't wait long enough for us to adopt that system so that our American workers can equal or surpass the liberty and freedom of the communists.

If you will notice every listed nation other than our own is either outright communistic or a democratic socialist nation. Many of whom persecute or outright ban Christians, the bible and evangelizing.

I have continually tried to make the point, which Dr. Evans refuses to either confirm or deny, that our nation was founded with a protectionist economic system in place and prospering long before either Torrens or Ricardo proposed CA in 1815 and 1817.

Certainly these socialist nations have no problem with the designation of industries as national industries, since the definition of socialism is government ownership or control of the means of production and distribution.

But in our system an industry is composed of thousands of firms large and small, all privately owned. Some just mom and pop firms who have operated for generations and whose owners are happy to continue to be their own boss and earn a living. But when CA requires them all to be collectively lumped together into a national system so that American industries can be compared as a single collective industry to a foreign nation's collectively owned industries, the results are predictable. Sayonara America.

I can only assume from Dr. Evans continual reliance on his CA assumption, that he equates American firms closing down operations here and laying off their American workers so that they can locate in countries and hire foreign workers that do not even have an industry similar to theirs in that country and then ship the completed production back to the US tax free, I can only assume that this is Dr. Evans definition of the principle of CA in real life operation.

Let's examine a few of the serious problems in our nation today and see how free trade can be a source of correcting or exacerbating those problems.

Social Security, financed through a wage tax on workers income; how much tax on foreign workers is collected to support SS?

Education, financed through real estate taxes; how much property tax do foreign factories pay?

Military, financed by the income tax on wages; how much is paid by foreign workers or profit making companies?

Health care particularly Medicare, paid for by wage taxes on worker's income; how much tax on foreign workers is collected to support health care?

The list could go on and on. Of course we could eliminate all of these programs as most free traders advocate.

Ludwig Von Mises made a very succinct statement on this subject in his monumental work "Human Action". When speaking of Great Britain implementing free trade after the success of the anti-corn law league in mid 1800, his statement was: "And then came the reaction". The reaction was of course GB abandoning their traditional system and adopting collectivist socialism.

He who will not learn from history is bound to repeat it.

Tom

Islamaphobe's picture

Al,

At the beginning of each year, the Heritage Foundation, a conservative; i.e. free market, think tank in the United States, ranks nations according to their economic freedom in what it calls it Index of Economic Freedom (IEF). Allowing relatively free international trade and capital (financial) flows in one of the leading criteria used in reaching a high position in the IEF. For 2007, the top twelve nations are, in order: Hong Kong, Singapore, Australia, United States, New Zealand, United Kingdom, Ireland, Luxembourg, Switzerland, Canada, Chile, and Estonia. Here are the rankings of some other relatively high income nations: Denmark (13), Netherlands (14), Germany (19), Sweden (21), Spain (27), South Korea (36), France (45), and Italy (60). Several nations are not listed: Sudan, Serbia, Democratic Republic of the Congo, Iraq, and Montenegro. The last twelve nations listed are, in order, Burundi, Chad, Guinea Bissau, Angola, Iran, Republic of Congo, Turkmenistan, Burma, Zimbabwe, Libya, Cuba, and North Korea (no. 157). In general, Islamic nations are in the bottom half. The rankings of India, China, and Russia are 104, 119, and 120, respectively.

There are rankings of nations in terms of per capita GDP, but international comparisons of income are notoriously difficult to make. They do tend to show, however, that nations with relatively open economies do relatively well.

I hope you are able to breathe normally again.

JSE

tom-g's picture

Dear Dr. Evans,

My first inclination after your current posting was to just apologize and beg your forgiveness for the obvious personal distress one of your critics (me!) had caused you. However, given the serious consequence your personal economic views have tended to produce upon the knowledge and national values of the youth of our nation that you were allowed the privilege of economically educating for 42 years, I find I can not in good conscience refrain from pointing out several serious personal and economic flaws about CA contained in this article.

As you correctly point out CA concerns a comparison between two different economic activities engaged in by two different nations before they decide to cooperate with each other in trade. You then, based upon the definitions of the required economic assumptions defined in the law of CA, purport to show the gains that result from that mutual cooperation.

You, however stated your career was based upon real life not economic thought and you did not think these necessary economic assumptions were correct according to your personal belief. So, you then proceeded to revise the economic law to conform to your own personal beliefs, by scrapping the economic assumptions contained in the law. And even though you kept the same CA name and continued to assume the gains shown by adherence to the assumptions upon which the original law were based, were still valid, you then give us the insight of your own personal examples and recommend them to us as real life examples of the law of CA. But, as we Preterists usually ask: "Is it true?"

In your personal example you correctly identify two different entities, yourself and another single entity (even though collectively it is a group of Preterists).You then establish that in the one activity of theology "I realized that I was at a huge absolute disadvantage compared to any serious biblical scholar in almost any aspect of the study of the Bible." So far so good, you have established the overwhelming absolute advantage of the other entity in the study of the bible.

Now you proceed to establish that the absolute advantage of that other entity compared to you in the study of Daniel was a severe absolute disadvantage. Again so far so good you have established the absolute advantage in both activities of the other entity.

But now, the ridiculous absurdity of comparing this example to the law of CA becomes obvious. First of all by your own words you establish that your absolute disadvantage in the study of the bible is greater than your absolute disadvantage in the study of Daniel.

Therefore, by definition the other entity has a comparative advantage in the study of the bible and you have a comparative advantage in the study of Daniel.
Also then by definition you have a comparative disadvantage in the study of the bible and the other entity has a comparative disadvantage in the study of Daniel.

Now, we come to the crux of the matter, or as it has been crudely stated, the part that makes the cheese more binding, or again, the devil is in the details.

In mutually agreeing to cooperate according to the requirements of the law of CA, each of the entities defined to have the comparative advantage in each item will now continue to engage in that activity while each of the entities defined with the comparative disadvantage in each item will cease to engage in that activity. As a result there will be great gains to both entities according to Dr. Evans.

So now, all other Preterists with a comparative advantage will continue to study the bible with the exclusion of studying the book of Daniel. For Daniel they will defer exclusively to Dr. Evans.

Dr. Evans with a comparative advantage will continue to study the book of Daniel exclusively and will stop studying any other part of the bible. For all other bible study he will defer exclusively to the rest of the Preterists. By the way Dr. Evans your hope to eventually have an absolute advantage: ("I concluded, therefore, that if I applied myself to the study of Daniel in concentrated fashion, I might be able, in time, to make a small contribution to overall biblical understanding and that what began as only a CA (and severe absolute disadvantage) might develop in time into an absolute advantage, at least with regard to some parts of Daniel") becomes an immediate fact when you are the sole authority on Daniel by virtue of the definition of the law of comparative advantage.

How much further do I have to go to show that Dr. Evans personal example is not an illustration of the law of Comparative advantage and on the face of them, his statements are ridiculous and absurd. As is any attempt to apply the requirements to the production of economic goods by two different nations.

I will not go to such lengths to disavow Dr. Evans example of the Alabama football team as an example of the law of CA. Using another cliche: It is not even the same sport let alone the same ballpark or the same game.

This example, to be an example of CA, requires two different football teams each with a player who currently plays both positions of Quarterback and Safety. This by the way was very common in football and some of my favorite old time players did so.

Continuing with the analysis, by comparing the abilities of both of these players, one of them is determined to be far superior to the other at the QB position and superior but not as much so at the S position. The far superior QB then by definition has a comparative advantage at QB and a comparative disadvantage as S. By definition then, the other player has a comparative advantage at S and a comparative disadvantage at QB.

Now, the absurdity of the example becomes obvious. (As does this law when comparing economic production between nations.)

The two teams agree to cooperate with each other at the QB and the S positions. The team that has the player with a comparative disadvantage at QB position agrees to play without their own QB but will have the other team's QB play for them. The team with a comparative disadvantage at the S position agrees to play without their own S but will have the other team's S play for them. This will allow them to have the very best QB playing for both teams but unfortunately the weakest S playing for both teams. (Come on Dr. Evans be serious)

Whatever was the intention of Dr. Evans with these two illustrations, they certainly do not and can not in any application illustrate the law of CA. The one thing that we commend him for with these examples is the glaring ridiculous absurdity of the law itself.

While I do not in any way include myself in the same category as: "“important and intelligent men”, I do attempt to consistently apply the same hermeneutical principles to all things as I apply them to the Scriptures.When I found that the traditional theories advocated then and now by the best professional theologians were not true, I became a Preterist. I would hope that same spirit of critical examination is advocated by you, Dr. Evans, and not reserved exclusively with a view to removing the mote from another person's eye. As I recall there is a definite responsibility placed by God on teachers, I have always believed that applied to all things not just the Scriptures.

There is so much more that begs to be refuted in your article but, as I said from the beginning my first reaction was to personally apologize to you and beg your forgivness for the personal stress and agravation you have suffered as a result of my prior comments. I may yet succumb in to these non-Christian impulses and refuse to refute any further the errors in your article.

Regards Tom

Islamaphobe's picture

Tom,

Nice try, but no gold star. I shall forego the temptation to reply in kind and make frequent inclusions of the word "absurdity" in reference to your arguments or to suggest that views such as those you hold have contributed in some way to the subversion of the things that this nation stands for. I insist that the principle of CA underlies the rationality of specialization whether it be by nations in international trade, sports teams, or biblical scholars. In the field of biblical study, by the way, I cannot see how it would make sense for one person to be assigned the complete responsibility for the study of one particular part of the Bible since we all bring our human limitations to the study of it and benefit from the cross-fertilization of ideas with each other. Moreover, whereas there are objective measures of the quality or quantity of commodities, the evaluation of biblical scholarship is largely subjective. Such complications do not rule out specialization on the basis of CA in biblical study. That, of course, is a point that you cannot accept because your thinking requires you to put CA into a box where such cases as my biblical study and football examples are excluded by definition.

Here's a really simple example for you, one I was reminded of when I tapped into EconEdLink, which does economics educatin materials for K-12 teachers. In a piece entitled "The Economics of Professional Sports: Comparative Advantage and Specialization," the author points that Babe Ruth could have been either the best hitter/outfielder or pitcher on the New York Yankees. In fact, as I remember, he started out as a pitcher for the Red Sox. He had an absolute advantage over all other players at both positions. But there was only Babe Ruth, and because of physicial limitations, he could not play both positions. So he went where his CA was.

To switch back to international economics, because of such factors as qualitative differences in commodities and the law of diminishing returns, it is quite rare for international specialization to result in a single nation being the sole producer of a specific good.

JSE

JL's picture

Good stuff John,

It seems to me that Adam understood CA better than modern intellectuals. He taught one son to farm and one son to ranch. Too bad the farmer son was a liberal.

JL

Blessings,

JL Vaughn
Beyond Creation Science

Windpressor's picture

****************

JL,

"It seems to me that Adam understood CA better than modern intellectuals."

Didn't that happen after a protectionist trade barrier was erected against entry to what was formerly a free trade garden zone? Wasn't that due to damage done as a result of failure in an open marketplace of ideas?

G1

...........................

G-Juan Wind

Islamaphobe's picture

I hadn't thought about it that way, but thanks for pointing out that Adam grasped the importance of specialization. And maybe you're right that Cain was a liberal. In any event, I value your opinion highly and very much appreciate the comment.

JSE

tom-g's picture

Dear Dr. Evans,

I wonder, did you require your students to have an economics text book for your course? Could you tell us which book it was?

It is possible I have that as one in my library and we could then have common ground to possibly refresh your memory for discussion purposes. I am certain that Ricardo's Law of Comparative Cost (Advantage) was presented in that text.

I have most of Rothbard, Von Mises, Samuelson, Keynes, Von Hayek, Batra, Ely etc.

But, please, even though I know it's like pulling teeth and is contrary to your own personal philosophy, is there anything I can do that would induce you to honestly admit that our nation for at least its first 150 years of existence, or well after WW2 was economically protected behind a tariff barrier that averaged approximately 40% ad velorum?

I would have to think that you, contrary to the Marxist bent of today's liberal college educators, wanted to make certain that your students did not leave your classes without an appreciation for their own heritage and nation's economic history.

Surely as a college professor, you required your students to have some knowledge of the economic history of their own country didn't you? Surely there had to be some reference to things like the Tariff of Abomination? Or the infamous Smoot Hawley? How about Jackson threatening to hang his own Vice President, Calhoun, over the tariff? What about the part the tariff played in the reason for the secession of the Southern States and our own Civil War, as an economist you would have stressed that, wouldn't you?

You are certainly free to refer to me as a Protectionist since that is how I refer to myself, and the name I gave to my publications. I would prefer the honorable name of American, as our first President referred to it in his Farewell Address. So, an American Protectionist is my first preference.

Tom

Islamaphobe's picture

P.S. I forgot to add that, in my opinion, although Andrew Jackson was a fine military leader, he was, in several other respects, a rascal whose presidency has been overrated thanks to Arthur Schlesinger, Jr., other historians, and apologists for the Democratic Party. At least I shall give him credit for befriending Sam Houston (I'm from Texas.).

JSE

Islamaphobe's picture

Tom,

I shall take a few minutes to address your comments, though I find it difficult to relate them to anything I wrote in this last article. Your technique is, of course, to ask me to answer questions designed to put me on the defensive rather than respond to the substance of what I hve written. I won't bother to draw up a list of questions for you to answer.

In the course of teaching economics for many years I used many textbooks, including, during my last few years, the one that I wrote myself about international finance. I generally tried to use books that were well received and that were, in my judgment, as intellectually objective and readable as possible. In international economics, that meant using books that gave protectionist arguments a fair hearing.

When you refer to a tariff that was allegedly 40 percent ad valorem, I NEVER made any such claim when I taught, and I am not certain how you have ascertained that figure. Forty percent ad valorem as measured how? Of total imports? Of the total number of goods listed in the tariff schedules? And how did this tariff wall vary over time? What percentage of goods were duty free? Etc. Also, focusing on tariffs to the neglect of other ways to restrict trade, like procedural delays and the imposition of import quotas, is very misleading.

I do readily acknowledge that over most of the history of the United States, import duties were higher than they are today. I also acknowledge that when President Thomas Jefferson resisted the idea of protecting manufactures, he helped assure that the nation was not well prepared to fight the War of 1812. Yes, tariff disputes were a factor in bringing on the Civil War, but it was slavery that was THE cause. I am of the belief that the erection of higher tariffs after the Civil War made some positive contributions to the economic development of the United States by improving the terms of trade (forcing foreigners to cut the prices of our imports) and encouraging foreigners to invest in real terms in this nation. I am also of the belief that our situation has changed "slightly" since that time. And then I am CERTAIN that the passage of the Smoot-Hawley Act of 1930, which probably raised import duties to their highest level in history, helped bring on the Great Depression. The stock market crash of 1929, incidentally, began on October 29, 1929, the day after the Senate committee on tariffs approved, by one vote, the legislation that was to become Smoot-Hawley. The ensuing debacle ultimately led to the passage of the first Reciprocal Trade Agreement Act (1934), in which Congress essentially declared itself incompetent to deal with tariff levels and ceded to the President the power to negotiate the level of import duties, within broad limits.

In short, you had better believe that I had plenty to say about the trade history of the United States--and the world--when I taught international economics. And please don't associate me with the dominant liberal voice that exists on college campuses today. I used my own classes to teach the truth as I saw it, and that sometimes included refuting the nonsense about economics that emanated from economists on the left and from professors in other disciplines.

John S. Evans

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